In the time it takes to withdraw money from the bank machine, consumers can now get a mortgage.
No more digging up every last statement and pay stub. No more sweating it out until settlement day. Freddie Mac, the Federal Home Loan Mortgage Corp., says the day of the automated mortgage is here.
Instead of loan originators, processors and underwriters poring through documents for several weeks, computers can digest a loan application and spit back an answer in minutes. Mortgages can be approved over the phone.
In the coming weeks, Freddie Mac will link a handful of mortgage firms to its new automated underwriting service, Loan Prospector. The corporation expects several hundred lenders to sign up by the end of the year.
"There's basically a revolution going on in the mortgage market this year, and it's one involving technology," said Guy D. Cecala, editor and publisher of Inside Mortgage Finance, a trade newsletter. "There's a major effort to automate as much as possible of the mortgage origination process."
By the end of the year, he says, borrowers could conceivably apply for a loan on a Monday and close on Friday.
Leading the revolution are Freddie Mac and Fannie Mae, the Federal National Mortgage Association, which plans to launch the similar Desktop Originator next month.
Automated underwriting is expected to take the headache out of getting a loan -- do away with stacks of paper, speed mortgage approvals and eventually allow loans to close in no more than 10 days. Now it takes 30 to 60 days to settle on most properties.
"Most consumers' expectations are that getting a decision on a mortgage takes 45 days," said Doug Rossbach, a senior vice president with Prudential Home Mortgage, which is hooking up to Freddie Mac. "Most people do not realize this is available. xTC Consumers disbelieve that it's possible."
Several large mortgage companies have signed up, many of which serve the Western and Midwestern United States. A few, such as Citicorp Mortgage Inc., Prudential, Countrywide Funding Corp. and PHH US Mortgage Corp., serve the Baltimore region.
Lenders say they can better compete by offering a more convenient and consistent way to get a loan. For buyers, the quick turnaround could make for an impressive bargaining chip. Sellers could rest easy that a sales contract won't fall through.
But lenders shouldn't expect to keep their competitive edge forever.
"The feeling in the industry is that this is not novel technology that just a handful of lenders will use," Mr. Cecala said. "It is something everyone will be forced to use before too
Mr. Rossbach envisions a day when lenders would plug an applicant's data into several automated systems and place the loan with the most competitive one.
"Ultimately, it's going to be the way the entire industry does business," Mr. Rossbach said. "How the [Freddie Mac system] shakes out is too soon to tell."
To use its system -- plugged into an array of credit reporting firms, appraisal firms and mortgage insurance companies -- Freddie Mac charges lenders hookup and other user fees, plus $100 per loan.
Borrowers who call or visit a lender need only give their income, an estimate of assets and approximate loan amount, all of which a loan originator keys into a computer. In a matter of minutes, the computer evaluates the borrower's credit and likelihood of repaying the loan. The computer scores the application as accept, refer or caution.
Freddie Mac expects to accept about half the applicants, said Jane Dwight, director of automated under writing for Freddie Mac.
"We wanted to eliminate paperwork and streamline the process," she said. "If it's automated, and Freddie Mac says it's acceptable, the lender can skip much of the process."
Approvals are subject to verification of employment and financial information, a title search and a property appraisal. That could be done by an appraiser or by computer -- through Loan Prospector within 72 hours for an additional fee. Loans not immediately approved get processed the traditional way.
When Freddie Mac grants approval, it also agrees to purchase the loan, a major selling point for lenders. Though a handful of large lenders had set up their own automated systems over the past couple of years, they still had to sell the loans on the secondary mortgage market, usually to Freddie Mac, Fannie Mae or private investors.
PHH US Mortgage Corp., one of several lenders that tested the program for Freddie Mac last year, has processed 5,000 loans since August, 40 percent of which were automatically accepted, said Donna Van Osten, vice president of underwriting. The company's "Phone In, Move-In" program guarantees to make a decision within 24 hours and meet the customer's closing date.
Lenders say automation allows them to eliminate steps in processing and underwriting and cut costs. The savings eventually should be passed on to consumers, possibly in the form of lower rates, Mr. Rossbach predicted.
Letting a computer do the work also should reduce errors, lenders and Freddie Mac officials said. For one thing, lenders will have more time to scrutinize loans that don't get immediate approval.
Ms. Dwight of Freddie Mac predicts that "we'll be seeing a much higher rate of consistency in underwriting decisions."
That should lead to more borrowers overall getting loans approved, she said.
Only time will tell, said Mr. Cecala. "The jury is still out on whether that will happen."